Key Takeaways
Amid greater economic and social challenges than those faced by developing nations, Southeast Asian countries such as the Philippines and Vietnam have been gray-listed by the Financial Action Task Force (FATF), while Myanmar has been on the blacklist since June 2022.
In response, South East Asian countries are strategically turning to cryptocurrencies, especially stablecoins, to strengthen their economies.
This article examines the role of stablecoins in Southeast Asia amid economic challenges. It assesses the impact of FATF policies and includes case studies demonstrating how cryptocurrencies contribute to resilience, potentially shaping the future of these economies.
Established in 1989 by the G7 countries (Canada, France, Germany, Italy, Japan, the United Kingdom, and the United States), the FATF enforces policies related to anti-money laundering (AML) and counter-terrorism financing (CTF).
Although being on the FATF list does not impact countries as harshly as the blacklist —which points out high risk and severe deficiencies in their strategies—it still presents economic obstacles. Often, this includes a significant drop in capital inflows—sometimes amounting to about 7.6% in capital inflows —as it highlights weaknesses in the countries’ efforts to enhance their financial policies.
Placement on the FATF gray list can significantly reduce international trade and investment flows, as nations and foreign investors perceive gray-listed countries as high-risk. This perception increases business costs, heightening scrutiny and compliance requirements, which may decrease foreign direct investment.
Additionally, international banks might stop or reduce services to businesses in gray-listed countries to avoid the risks and extra work needed for stricter checks.
Cryptocurrencies, including stablecoins, are playing a significant role in addressing the economic challenges faced by some Southeast Asian countries on the FATF gray list.
These digital assets provide alternative financial solutions that help mitigate issues related to traditional financial systems, which the graylisting may more directly impact.
Stablecoins are digital currencies that aim to maintain a constant value by linking to a reserve asset such as fiat money like the US dollar or gold.
Countries such as Vietnam, the Philippines, Myanmar, and Malaysia, where financial uncertainty is prevalent, are adopting stablecoins as reliable national and international transactions and savings methods. This approach provides a solution that avoids the volatility of other cryptocurrencies, making it a stable financial tool in these regions.
The following cases are examples of how the use of cryptocurrency is increasing in the region.
The Philippines has seen significant developments in adopting stablecoins, particularly for remittances.
In Vietnam, the use of stablecoins is expanding, particularly in the e-commerce sector. The country is part of the Regional Payment Connectivity (RPC) initiative, which enhances financial links across the region and supports the growth of Vietnam’s digital economy. By using stablecoins, Vietnamese micro, small, and medium-sized enterprises (MSMEs) increasingly participate in cashless transactions, aiding in expanding e-commerce activities across borders.
The situation in Myanmar is complex and challenging. It is listed on the FATFs blacklist, which means that the country is urged to implement stricter measures. Following a military coup in February 2021 that ousted the elected government led by Aung San Suu Kyi, the country has been in a state of turmoil.
This political instability has led to widespread protests, economic disruptions, and international criticism. The establishment of the National Unity Government (NUG) by opposing groups reflects ongoing resistance against military rule, emphasizing the contentious current political landscape in the country. This government has embraced using the Tether (USDT) stablecoin as an official currency for local transactions.
While these three countries are on the FATF’s black-and-gray lists and face economic challenges, others in the region also embrace new technologies and stablecoins as part of their economic strategies.
In Malaysia, the integration of stablecoins into digital wallets and payment systems is significantly enhancing financial inclusivity. The country has been making strides in developing its digital payments infrastructure, evidenced by a marked increase in non-cash transactions and the widespread adoption of digital payment solutions.
For example, the DuitNow QR system, Malaysia’s QR, is a national QR standard developed by Payments Network Malaysia (PayNet), which operates under Bank Negara Malaysia, the country’s central bank. This system standardizes QR code payments across various financial platforms, facilitating interoperability and easing digital transactions for users across Malaysia.
Integrating stablecoins and new financial solutions in Southeast Asia presents distinct challenges and opportunities. Regulatory hurdles, such as compliance with international financial standards, are significant obstacles.
However, stablecoins and new technologies have also been proven to offer substantial economic opportunities by enabling smoother international transactions and enhancing efficiency in international trade and transactions. Technological advancements in blockchain and fintech are crucial for facilitating the adoption and integration of stablecoins.
As a result, stablecoins are poised for future growth within the region’s financial systems.
Southeast Asia is seeing major changes in its financial strategies due to the adoption of stablecoins amid challenges from FATF graylisting. These digital currencies are becoming crucial for enhancing economic resilience and providing efficient transaction mechanisms.
While the future of cryptocurrencies in the region appears promising, being on gray or black lists highlights significant challenges and the need to address regulatory issues to attract more support from investors and other economies.
A country can be removed from the FATF blacklist by addressing the strategic deficiencies identified by the FATF in its AML and CTF practices and demonstrating significant progress in improving its financial regulatory environment. A place on the FATF gray list can lead to several adverse effects for a country. These include increased scrutiny from international financial institutions, which may result in higher transaction costs and stricter compliance requirements. Foreign investors might view a gray-listed country as a higher risk, potentially leading to reduced foreign direct investment. In Southeast Asia, the most widely used stablecoins are Tether (USDT), USD Coin (USDC), and Binance USD (BUSD). These stablecoins are favored due to their stability, being pegged to the US dollar, and extensive acceptance across various cryptocurrency exchanges and platforms. How can a country be removed from the FATF blacklist?
What are the potential drawbacks for countries placed on the FATF gray list?
Which stablecoins are most commonly used in Southeast Asia?